Debt Burden at ’80s Level May Aid U.S. Economy: Chart of the Day

Consumers have reduced their debt
burdens enough to be able to withstand higher taxes and help
sustain the U.S. economy’s expansion, according to Pavilion
Global Markets Ltd. strategists.

As the CHART OF THE DAY shows, mortgage and consumer-loan
payments amount to the smallest percentage of after-tax income
since 1983, according to quarterly statistics compiled by the
Federal Reserve.

The debt-service ratio was 10.6 percent of disposable
income in last year’s third quarter. Five years earlier, the
figure peaked at 14.1 percent. Pavilion highlighted the drop
yesterday in a report with a similar chart.

Household spending is poised to “strongly contribute to
growth” this quarter and next, Pierre Lapointe, head of global
strategy and research at the Montreal-based firm, and two of his
colleagues wrote. Consumers account for about 70 percent of the
economy, according to Commerce Department data.

Other indicators besides debt-service expense bode well for
consumers, they wrote. The report cited a rebound in the housing
market, the end of a decline in inflation-adjusted wages, and a
slowdown in debt reduction.

Taken together, they will outweigh the economic effect of
ending a temporary two-percentage-point cut in the payroll tax
and possible automatic reductions in federal spending this year,
the report said.